Daily Rate Update: September 9th-13th

After suffering big losses in August due to negative trade headlines, US stock markets have reversed in September and are now just below the all-time highs seen in late July. Easing fears of an impending recession coupled with now-positive trade headlines have lifted the Dow, S&P, and NASDAQ. The closely watched S&P 500 is currently trading at 3,016, a whisker below its all-time closing high of 3,025 hit back on July 26, 2019. A solid economic environment coupled with a strong job market and rising wages are a few other reasons for the rise in the equity markets.

The US consumer continued to spend in August thanks to a strong job market and higher wage growth. August retail sales rose 0.4% versus the 0.2% expected while July was revised higher to 0.8% from 0.7%. This signals that the consumer remains alive and well with the ability and willingness to spend. With consumer spending making up two-thirds of the US economy, this is great news leading into 3rd Quarter Gross Domestic Product data and throws a wet towel on any near-term recession chatter.

Inflation at the consumer level remained contained in August due in part to a decline in the cost of gasoline and other energy products. The Consumer Price Index (CPI) rose by a meager 0.1% last month, down from the 0.3% increase in July. When stripping out volatile food and energy, the Core CPI increased 0.3%. Inflation continues to run on the low end of the spectrum and the Federal Reserve said it will continue to remain low for several years.

Mortgage rates edged higher this week, though they remain at three-year lows and well below what was seen a year ago. Freddie Mac reports that the 30-year fixed-rate mortgage rose seven basis points this week to 3.56% with an average 0.5 in points and fees. A year ago, the rate was 4.60%. Sam Khater, Freddie Mac’s Chief Economist says, “While there has been a material weakness in manufacturing and consistent trade uncertainty, so far, the American consumer has proved to be resilient with solid home purchase demand.”

New home construction continues to run below demand, and the rate at which housing is being built in the US has not recovered since the Great Recession. Zillow reports that new housing starts are expected to lag below historical averages through the end of 2022 or even longer. Home prices have risen considerably since the recession ended in 2009 but construction has not kept up. Builders cite a lack of land to build on, lumber and other building material shortages, and hiring qualified workers.

US household debt hit an all-time high in the second quarter of 2019, rising by $192 billion (1.4%) to $13.86 trillion. It was the 20th consecutive quarter with an increase. To break it down: mortgage balances, the largest component of household debt, rose by $162 billion in the second quarter to $9.4 trillion. In addition, student loan debt edged lower to $1.48 trillion, and auto loans totaled $155 billion while credit card balances increased to $868 billion.

Fannie Mae reports that sentiment in the housing market hit a survey high in August due in part to a very favorable mortgage rate outlook. The Fannie Mae Home Purchase Sentiment Index (HPSI) rose to 93.8 last month, a fresh survey high. Within the report, there was a big increase in the “mortgage rates will go down” component. The HPSI is up 5.8 points compared to the same time last year. Doug Duncan, Senior Vice President and Chief Economist said, “We do expect housing market activity to remain relatively stable, and the favorable rate environment should continue supporting increased refinance activity.”

Job openings across the US remained at near record levels in August as the labor market continues be a beacon of light in a somewhat slowing economy. The Labor Department reports that there were 7.2 million job openings on the last day of August, just below the all-time high of 7.6 million reached in the beginning of 2019. Job openings increased in a number of industries, with the largest increases in wholesale trade (+91,000), real estate and rental and leasing (+60,000), and information (+42,000).

Small business optimism remained just below record highs slipping in August because fewer owners said they expect better business conditions and real sales volumes in the coming months. The NFIB Small Business Optimism Index slipped 1.6 points to 103.1 last month, remaining within the top 15% of readings. NFIB President and CEO Juanita D. Duggan said, “Small business owners continue to invest, grow, and hire at historically high levels, and we see no indication of a coming recession.” The report went on to say that the main impediment to more growth is the record level of no qualified workers.

Low mortgage rates have pushed the number of homeowners eligible for refinancing to record highs in July. Black Knight reports that there are 11.7 million high quality borrowers who are refinance eligible across the nation, the highest since record tracking began in 2000. Refi-eligible means those who carry a credit score of 720 or above. Mortgage rates have plunged in 2019 by almost a full percentage point from 2018’s highs.

The National Association of Realtors (NAR) reports that fixed mortgage rates could decline to 3.3% by year’s end as the US economy slows. The lowest ever seen was 3.31% back in November of 2012. The NAR’s chief economist Lawrence Yun made those comments soon after the weaker-than-expected Jobs Report for August was released last Friday. “Mortgage rates could fall to 3.3% before the year-end,” Yun said. “But lower rates may not help with affordability because home prices are re-accelerating higher, easily above the latest wage growth.”

There are no economic reports due for release while the rest of the week features inflation data from CPI and PPI, Retail Sales and Consumer Sentiment. The Treasury will sell a total of $78 billion notes and bonds this week beginning on Tuesday. The US stock markets kicked off the week with higher prices seen for the Dow, S&P, and NASDAQ due in part to easing trade tensions while fears a full-blown recession here in the US fade a bit.